Paper: Consumer data helps fuel Internet economy

Online targeted advertising and the collection of consumer data are the fuel of Internet commerce, not the major privacy problems described by some advocates and U.S. lawmakers, according to a new paper.

"The use of such data permits firms to target their marketing messages to consumers' interests, pays for a wealth of content on the Internet, and helps protect consumers from a variety of online threats," said the paper, released Monday by the Technology Policy Institute (TPI), an antiregulation think tank.

"It forms the basis for many of the business models that are fueling the growth of the Internet."

Privacy groups want a "free lunch" online, with strong privacy controls that make it tougher for advertising to work online, the paper said.

"Privacy advocates have provided little detail on the benefits of more privacy and have typically ignored the costs or trade-offs associated with increasing privacy," the paper said.

Data collection delivers ads that people want and that advertising pays for a multitude of free services online, said the paper, co-authored by TPI President Thomas Lenard and Emory University law and economics professor Paul Rubin.

In addition, collection of personal data can help Web sites protect users, through the logging of bad behavior such as malware or phishing attacks, the paper said. Search engines collect anonymous consumer information to deliver better searches and protect against click fraud, the authors wrote.

While some critics say the collection of personal data has been linked with identity theft, there's little evidence of that happening, Lenard added.

"I think [public] policy should be based on evidence of real harms to consumers, and there is actually very little evidence of that," he said. "Things like identity theft are already illegal, but there is also really no evidence that limiting the use of information for legitimate commercial purposes will reduce identity theft."

TPI has published the paper has some privacy groups and U.S. lawmakers have called for more regulations on online advertising. Representative Rick Boucher, a Virginia Democrat, has promised in recent weeks to push for legislation that would limit how Internet service providers can track their users.

Earlier this month, new U.S. Federal Trade Commission Chairman Jon Leibowitz said he believes ISPs and Web sites tracking user behavior should get opt-in permission before doing so.

The FTC will look at filing cases against Internet firms that don't give adequate notice and consent before tracking customers or altering privacy policies, Leibowitz said on C-SPAN's The Communicators television program.

"I think the better practice is always opt in," Leibowitz said. "Then consumers ... think about what they're doing rather than just clicking a box."

In many cases, Web sites tracking user behavior now require their customers to opt out of the data collection. If Web sites must get opt-in approval, the majority of customers would likely not participate and the online advertising model will break down, Lenard said.

"The evidence thus far is that consumers by and large stay with the default and opt-in rates would be very low, even if at some level consumers recognize the benefits," he added.

"My concern is that this could be quite costly to consumers in terms of diminished revenues to support services, less-well-targeted advertising, and that it would make it more difficult for entrepreneurs to develop new online business models that would benefit consumers."

Privacy advocates, while agreeing with the importance of an advertising-supported Internet, slammed the paper. TPI is acting as a mouthpiece for the large Internet companies and telecom vendors that support it, said Jeffrey Chester, executive director of the Center for Digital Democracy, a privacy and digital rights group.

The paper also misrepresents the position of many privacy advocates, who are calling for Internet companies to inform consumers about data collection practices and give them control over how their data is used, Chester added. "No one's against online advertising," he said.

"What we're saying is, there's a consumer and civil liberties balance, and weight should lie with the individual in the digital age, not with corporate data brokers."

The study also fails to distinguish among the several types of data being collected online, said Alissa Cooper, chief computer scientist at the Center for Democracy and Technology, a privacy and digital rights group.

Some data collection can be fairly harmless, while some data is personal or can easily be linked to a specific user, she said.

"They kind of lump together all data collection in one bucket," she said. "There's a large about of gradation in data collection."

The paper also suggests that industry self-regulation in data collection could have negative effects, because online companies could no longer differentiate themselves based on their privacy protections.

But most online advertising vendors are in favor of self regulation, Cooper said.

"To say that there's no place for self-regulation, or to say that it has adverse effects, when everyone in the ecosystem has the opposite view, really just kind of puts you out there in the extreme," she said.

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